Seeking the Most Effective Form of Mining Agreements For Mongolia: An Analytical Approach under the
Principle of Permanent Sovereignty over Natural Resources
Монгол Улсын хувьд хамгийн үр ашиг бүхий уул уурхайн гэрээг тодорхойлох нь: Байгалийн баялаг дахь эзэн орны байнгын бүрэн эрхийн зарчимд тулгуурласан дүн шинжилгээ
In early fifties, the concept of permanent sovereignty over natural resources resulting from the progress of decolonization process and the wave of nationalistic ideology became a reason for great controversy among the developing and developed countries. Under the direct influence of PSNR new forms of mining agreements such as the joint venture, the production sharing agreement and the service contract were emerged. They were general basis for the host governments to increase revenue flow from the exploitation of natural resources. If the main criticism of the old concession system were mostly related to its incapability of being an expression of sovereignty right of the host state, then it is unsurprising that the new contracts sought to be rebalance this feature.
Nevertheless, after the wave of permanent sovereignty over natural resources the host countries became aware of that their lack of skill and experience and financial capacity to conduct the mining activities in their own. In addition to these economic and technological realities, the view to see the concept of permanent sovereignty over natural resources from another angle – as a path to sustainable development launched to reflect in developing countries policy.
Following this international trend, Mongolia needs to maintain own approach to achieve the ultimate economic goals through the mineral development and to strengthen its position in international relation for its people’s wellbeing. Contractual parties’ expectations from exploitation of mineral resources can be different in many ways when a sovereign state is involved in an agreement as a partner. Depending on the scale and specific features of the mining projects and distinguishing national characteristics, the various forms of mining agreements are used.
In February 2007 the Mongolian Parliament (the State Great Hural) adopted Resolution No. 27 ‘The List of the Strategic Important Deposits’ in accordance with the Mineral law of 2006. Included in the list are 15 mineral deposits, including large scale reserves such as Oyutolgoi copper-gold mining, Tavantolgoi coal mining and some uranium resources, which are identified as strategically important. For their competitiveness in volume and quality of the reserves, the Oyutolgoi and Tavantolgoi mineral resources are at the center of foreign investors’ attention. The exploitation agreement on the Oyutolgoi project was the first major contract related to mineral deposits in the above list since Mongolia transitioned to a market economy. The process of the negotiation on the Oyutolgoi agreement reveals that there is an extreme need for an academic study relevant to the mineral resource sector, especially on the terms and conditions of various types of mining agreements, and other closely related subjects that have an impact on the government’s development policy.
Due to a lack of academic study and theoretical rationale, many laws and regulations that conflict with each other have been adopted and this has added much to the debates in recent times. The confusion resulting from these conflicts is in turn public opinion, which sometimes exacerbates the situation, and ultimately results in an agreement that is inconsistent with the ultimate development goals of the country. A careful study on related subjects will contribute to resolving the existing conflicts and finding a way forward.
Academic study in this area will aid Mongolia in its efforts to maintain an approach that is well adapted to its national characteristics and the global trends concerning the relevant international law principles, mineral resource ownership theories, newly emerged mining agreement forms and dispute settlement mechanisms.
Mining agreement, principle of Permanent Sovereignty over Natural Resources, concession, natural resource, Oyutolgoi mining agreement, joint venture, state participation